Standing Committee A

[Sir John Butterfill in the Chair]

Finance Bill

(except clauses 4, 5, 20, 28, 57 to 77, 86, 111 and 282 to 289, and schedules 1, 3, 11, 12, 21 and 37 to 39) - Clause 269 - Transitionals and savings

Question proposed, That the clause stand part of the Bill.

Howard Flight: I welcome you to our deliberations this morning, Sir John.
 As we all know, the clause introduces the transitional arrangements. I am glad to note that it contains powers for the Revenue to make by order any other transitional provisions that may appear appropriate, as, despite all the Government amendments to schedule 34, it strikes me forcefully that the transitional arrangements are ludicrously complex and impenetrable and that other changes may need to be made. 
 There seem to me to be two different types of person. One is a member of a pre-1989 uncapped scheme grandfathered 15 years ago in 1989. I have encountered a great deal of upset about the fact that what was grandfathered 15 years ago has been retrospectively changed. Indeed, a lawyer friend who has been a lifelong member of the Labour party commented to me that he was disgusted with the lack of principle with which his colleagues had disregarded the fact that he had an arrangement to save his pension: he has not changed his employment, he is still a member of the same pension scheme and he now finds himself, towards the end of his career, with a load of different rules. He pointed to the fact that the Conservative party had established the principle of grandfathering, which has been thrown to the wind. The second category is self-evidently members of schemes—whether defined benefit or defined contribution—currently subject to capping. 
 I ask the Minister to put on the record the underlying principles that the Government followed in producing the transitional arrangements applicable to those two different categories of people. 
 The Government will be aware that various outside parties have said that the arrangements that have emerged are not quite what the Green Paper envisaged and in some cases are less attractive. It has been said that the Bill should provide a more precise definition of the valuation method for DB used to register for primary protection, which will be significantly more restrictive than expected; that protection applies to 20 times the pension available on early retirement at A-day rather than the full accrued pension; and that, for those too young to retire, retirement at the earliest permissible age is assumed. If early retirement 
 reductions are brought into the equation, primary protection will be much less attractive and less available. 
 The point has been made that the valuation basis is more prohibitive than was originally suggested. Point C5 of the consultation document says: 
''For DB benefits, pre A-day pension rights may be based on earnings when the benefits or part of the benefits are first taken, rather than on historic earnings. So, the taking of the first benefits under a DB scheme sets the maximum final pensionable salary''.
 I shall not go into excessive illustrations, but the point is readily made that some people lose out because the calculation may put them under the ceiling for protection, but as time goes by, and even with the £1.8 million, they may be over, particularly if they are younger when they come to take their pension on retirement. 
 Some of the amendments that we tabled to schedule 34 have been echoed by the Government, but I repeat that, having read through the explanatory notes, I found the schedule to be probably the least clear part of the Bill. It is an area of complexity and one in which the people who most want to know where they stand are those caught in the transitional process, so I think it pertinent that the Minister lay down the broad principles for those two categories, from which individuals can subsequently explore with their advisers precisely where they stand.

Ruth Kelly: It is a pleasure to be here under your chairmanship yet again, Sir John.
 As I said in opening the debate, we want to ensure that the move from the old pension regime to the new, simplified regime is as smooth as possible. I reject the charge that the hon. Member for Arundel and South Downs (Mr. Flight) made that we are somehow introducing retrospective taxation. He—or perhaps he and a few of his colleagues—seem to be the only people suggesting that that is how the new regime operates. We want to ensure that the transitional arrangements provide appropriate protection for existing pension rights, while being as straightforward as possible to understand and administer, and that they carry forward as little complexity as possible from the existing regimes. 
 I do not want to anticipate the debate that we are likely to have on the sixth group of amendments to the schedule, which suggest that we should carry forward all the previous regimes into the new, simplified regime. 
 I believe that the schedule, as amended, meets our objectives fully. It is in four parts. The first part will allow approved schemes to move into the new regime without the need to register doing so with the Inland Revenue. Schemes not intending to become registered schemes may give the Inland Revenue notice of that intention before 6 April 2006. There will be a tax charge that applies to such schemes that is equivalent to the existing withdrawal of approval charge on occupational pension schemes. 
 The second part of the schedule provides protection for those rights accrued before 6 April 2006 that, when 
 brought into payment, are likely to be worth more than the lifetime allowance. 
 Part 3 of the schedule covers individuals who have registered for enhanced or primary protection who also have lump sum rights of more than £375,000 that they can protect. In addition, there will be protection for lump sum rights accrued before 6 April 2006 that, although not in excess of £375,000, breach the limit of 25 per cent. of the total fund. Schemes will be able to make tax-free lump sums that exceed the new limit of 25 per cent. of the total fund if those rights were accrued before 6 April 2006. 
 Simplification also seeks to introduce a single minimum pension age of 55 for all by 2010. We debated that in the previous sitting. Without some extra protection, that could create some hard cases. In the current regime, a number of occupations have their own minimum pension age, ranging from 35 to 50. It is not possible to get from here to there in a single step. Members of schemes who already have rights to early pensions will, subject to meeting some conditions, receive transitional protection. 
 In general, members with the right to take pension at an age younger than 50 will continue to be able to do so, but in recognition of that early retirement, the value of the pension will be assessed against a reduced lifetime allowance. The lifetime allowance will be reduced by 2.5 per cent. for each year in advance of age 55 that the pension is taken. 
 Part 4 of the schedule covers a range of miscellaneous transitional issues, for example those schemes approved before 1970. I believe that those are sometimes referred to as old code schemes. They will be able to wind up before the end of 2006–07 and pay out all the benefits as a lump sum. Of the total benefits, 25 per cent. will be tax-free and the remainder paid as a lump sum taxed at the member's marginal rate of tax. That will ease the transition to the new regime for those insurance companies with old code schemes on their books, most of which have only small pension funds. 
 We are also protecting the rights of occupational schemes to pay the balance of five years' pension payments on the death of a member, even if that death occurs after the age of 75. 
 The clause allows the Treasury to make regulations on transitional issues. As the industry focuses on the detail of moving to the new regime, other difficult issues may arise. That is not surprising, given the complexity of the current rules and regulations. There will be further discussions between the Government and the industry about the exact workings of the transition. I do not accept, however, that the transitional rules are overly complex; they merely reflect the rules of the current pension regime. Those powers will enable us to respond flexibly. 
 We will discuss the other points raised by the hon. Gentleman when we debate the amendments that he has tabled to the schedule. I commend the clause to the Committee.

Howard Flight: The Financial Secretary says that she does not think that the rules are unduly complex, but she has not responded to my request to set out in understandable language the basic principles behind the transition arrangements for the two different types of people—those who belong to an uncapped pre-1989 scheme and those who belong to a capped scheme. Neither the arrangements in schedule 34 nor the notes set out any coherent pattern of broad principles. It is no good having a load of random rules; the Government must have come up with a basic principle to determine the transitional arrangements. It would be helpful to those affected if she bothered to set out those principles.
 The capping arrangement introduced by the Conservative Government in 1989 quite clearly and correctly stated that those who were already members of pension schemes, because they were embarked on pensions saving, would be exempt so long as they stayed members of the scheme and in employment with its provider. They were grandfathered from the new arrangements. By definition, most of those people are probably in their 50s and moving towards retirement. The Financial Secretary is ignorant of many people's resentment at finding in their last decade of employment a grandfathered arrangement changed and new arrangements penalising them. Instead of being able to continue until retirement with whatever their contributions to that scheme were, they are grandfathered only if they have no further contributions to make to it. That is a major breach of the established grandfathering arrangements. 
 I would like the Financial Secretary to put on record the broad principles underlying the transitional arrangements, because they are not clear from the notes or the Bill.

Ruth Kelly: The hon. Gentleman suggests an alternative to the arrangements that we have proposed. I fully accept that when in power the Opposition adopted an approach that meant that every pension regime in operation at that time was grandfathered. That is why we have a system in which eight pension regimes operate. We have responded to calls from the industry to introduce simplification with a single regime. We introduced a genuine and fundamental reform, removing all the past regimes and replacing them with a single regime for tax purposes. The approach that he advocates would not deliver any of the benefits of simplification, and we will discuss that when we debate his amendments to schedule 34.
 Our proposal is radical and fair because it protects people's existing accrued rights under previous regimes and it introduces a simplified regime. The basic point that the hon. Gentleman wants me to put on record is that the lifetime allowance charge will not apply to pre-A-day funds where protection is cleared. Primary protection is there to give full rights to participate in the new regime, and enhanced protection allows pre-A-day rights to grow faster than inflation in return for a test that no further benefit accrual occurs after A-day, so rights accrued before A-day are protected in full, and future growth on pre-A-day rights can be protected. It is only post-A-day 
 contributions and service that need to be subject to the new regime. Of course, A-day is the date on which the regime is brought into force. 
 That is generous protection. It is more generous than the transitional protection arrangements that we first consulted on. The arrangements do not in any way seem retrospective. I commend the clause again to the Committee. 
 Question put and agreed to. 
 Clause 269 ordered to stand part of the Bill.

Schedule 34 - Pension schemes etc:

Howard Flight: I beg to move amendment No. 371, in
schedule 34, page 465, line 3, leave out sub-paragraph (2) and insert— 
 '(2) Any modifications of the rules of a pension scheme made by the regulations have effect until the first date after 5th April 2006 on which amendments of the provisions of the pension scheme referring (however expressed) to any limit contained in, or relevant in relation to approval under or for the purposes of, any provision of Part 14 of ICTA (pension schemes etc.) as it has effect at any time before 6th April 2006.'.

John Butterfill: With this it will be convenient to discuss amendment No. 372, in
schedule 34, page 465, line 16, at end insert— 
 '(c) modifications to give power, in prescribed circumstances, to prescribed persons to make prescribed amendments to pension schemes irrespective of whether such amendments would otherwise be provided by the rules of the pension scheme, the Pensions Act 1995 or otherwise.'.

Howard Flight: The amendment is designed to address a problem in paragraph 3, which is about giving the Revenue power to make regulations that modify existing schemes. Many defined benefit schemes provide benefits to be defined in part by reference to existing Revenue limits and the earnings cap, and they may require a percentage of a person's salary to be contributed in order to receive a matching employer contribution, although at present that is limited under the cap arrangements. As a result, when the existing cap arrangements go, such schemes could have a problem because they may find themselves with vastly increased liabilities. An example is a post-1989 member whose accrual was until then limited to a fraction of the salary below the earnings cap. For DC schemes, both employee and employer might find that the scheme requires much higher contributions.
 The intention seems to be that the Revenue will make regulations ensuring that any such provisions in existing schemes continue to have effect as they would have done but for the Bill. However, paragraph 3(2) contains a time limit: 5 April 2009. The assumption seems to be that there should be a period in which to amend schemes to avoid the type of problems that I have just described. However, there are some schemes with very restrictive amendment powers, which may not allow such amendments. 
 Amendment No. 371 would allow the regulations to continue indefinitely. Amendment No. 372 calls for a statutory power to make such arrangements and to 
 ensure that there is an overriding statutory power to make amendments to existing schemes, whether or not the schemes' own amendment powers would permit such amendments. There are quite complex issues relating to who should have the power. For example, in a defined benefit scheme, it may be that both trustee and sponsoring employer should have to pay, or just the employer. Equally, for money purchase schemes, where both employer and employees may be affected, arguably it should be the two together. The amendment is designed to establish the statutory power to make appropriate regulations, but leaves the detail to be dealt with separately.

Ruth Kelly: The Government are committed to ensuring that the move from the old pension regimes to the new system is as smooth as possible. We will achieve that by ensuring that the transitional arrangements are administratively as straightforward as we can make them, while being fair and flexible.
 Amendments Nos. 371 and 372 are concerned with the first part of the schedule and the provisions that allow pension schemes a transitional period in which to make amendments to their rules to bring them into line with the simplified regime. Those provisions are intended to be used to protect schemes that have adopted the wording of the previous statutory system, as the hon. Gentleman suggests. Without that power, and the regulations made under it, many schemes would be obliged to change their scheme rules in advance of A-day. It is unclear whether they could do that in time for the introduction of A-day on 6 April 2006. 
 The pensions industry has lobbied us hard to include extra flexibility in the Bill. Where a scheme does not have time to make the necessary amendments, paragraph 3 provides a three-year window. During that period, they will be protected from being compelled by members to make unauthorised payments or payments in excess of existing Inland Revenue limits under their pre-A-day rules. For example, a pension scheme may include a rule that allows the payment of benefits up to current IR maximums. Revenue maximums will disappear under the new regime, but the regulations under this power will allow schemes to continue as if they had a further three years to run. Amendment No. 371 would allow the Inland Revenue to override pension scheme rules indefinitely. We do not believe that that is desirable. We believe that three years should be adequate for schemes to make the necessary adjustments. In practice, they are likely to have over four years in which to do so.

Howard Flight: The reason behind the amendments is not lazy schemes, but that there may be some schemes that, because of the rules, cannot make the necessary amendments. Have the Government focused on that? It is no good having a period for adjustment if the scheme cannot make the necessary changes. If the Government do not like our route, how else might the problem be dealt with?

Ruth Kelly: I was going to deal with that point on the next amendment.
 Amendment No. 372 would empower the Inland Revenue to insert a power of amendment into pension scheme rules that is unconstrained by the scheme's rules or by Department for Work and Pensions requirements under the Pensions Act 1995. I understand the hon. Gentleman's concern that certain schemes may not feel that they can adjust their rules in that way. For example, schemes could be prevented from changing their rules to fit in with the new regime, either because DWP rules prevent them from making the necessary changes or because the change would conflict with trust law or with existing scheme rules that prohibit any such changes being made. However, the amendment is unnecessary, because the Inland Revenue has agreed with the DWP that the DWP will make regulations under section 67 of the Pensions Act 1995 to suspend the requirements of that section and allow schemes to reproduce Inland Revenue modifications in their scheme rules. 
 On the narrow point of trust law, I do not believe that trust law would prevent schemes from making appropriate changes to their rules. Trustees will usually have a power in the trust deed to change the terms of the scheme. However, I accept that that power is usually exercisable only with notice or sometimes consent from scheme members. Sometimes it may be necessary to make a formal application to court. However, the processes of change are well known and should be achievable within the extended time limit allowed by the provision. 
 Under trust law, trustees will have a fiduciary duty to act in the best interests of all the beneficiaries. They would simply be fulfilling that duty and acting in line with trust law if they changed scheme rules to allow the scheme to move into the simplified regime without losing upper limits on payable benefits or becoming liable to make unauthorised payments. Furthermore, paragraph 3(1) already empowers the Inland Revenue to make regulations that modify scheme rules as appropriate. Such regulations can override any existing scheme rules that prohibit changes to the benefits payable by schemes, if they need to. 
 I have of course sent draft copies of these regulations to members of the Committee. The Inland Revenue will undertake a formal consultation on the most appropriate form for the regulations made under paragraph 3. We shall carefully consider any points that are made on whether the detail of the regulations covers all necessary issues. However, I urge the hon. Gentleman to consider seeking to withdraw the amendment, as it should be redundant.

Howard Flight: As I understand it, the Minister has given the key answer to the problem that we spotted: the DWP is empowered to address the problem, so the amendment is unnecessary. I therefore beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendment made: No. 478, in 
schedule 34, page 465, line 46, leave out 'that date' and insert '6th April 2006'.—[Ruth Kelly.]

Howard Flight: I beg to move amendment No. 378, in
schedule 34, page 467, leave out lines 15 to 18.

John Butterfill: With this it will be convenient to discuss the following:
 Amendment No. 379, in 
schedule 34, page 467, line 19, leave out sub-paragraph (5) and insert— 
 '(5) Subject to paragraph 9, for the purposes of this paragraph the value of the individual's uncrystallised rights on 5th April 2006 under an arrangement is to be calculated in accordance with section 201 (valuation of uncrystallised rights for the purposes of section 199) as if— 
 (a) at the end of subsection (4) of section 201 the words ''and no reduction were applied under the arrangement to take account of early availability'' were inserted and 
 (b) at the end of subsection (7) of section 201 the words ''(c) that no reduction had been applied under the arrangement to take account of early payment'' were inserted.'.
 Government amendment No. 503. 
 Amendment No. 380, in 
schedule 34, page 467, line 29, at end insert 
 'as if it was not subject to this paragraph 9'.
 Government amendment No. 504. 
 Amendment No. 382, in 
schedule 34, page 468, line 41, leave out '25' and insert 'PCPF'.
 Amendment No. 383, in 
schedule 34, page 468, line 46, at end insert 
 'and where PCPF is the pre-commencement pensions factor (see paragraph 19)'.
 Government amendment No. 505. 
 Amendment No. 389, in 
schedule 34, page 474, line 15, leave out '25' and insert 'PCPF'
 Amendment No. 390, in 
schedule 34, page 474, line 20, at end insert 
 'and where PCPF is the pre-commencement pension factor as set out in sub-paragraph (6)'.
 Amendment No. 391, in 
schedule 34, page 474, line 28, at end insert— 
 '(6) The pre-commencement pensions factor is the appropriate factor certified from time to time by the Government Actuary having regard to the individual's age on 6th April 2006 and the extent to which the individual before that date received a tax free lump sum in lieu of pension'.

Howard Flight: Several of our amendments are grouped together, although they are in fact somewhat different. Schedule 34 says that if an individual opts to defer taking an annuity, he will be treated as entitled to payment of the benefits. Why has that interpretation been made? Surely, benefits should be treated as uncrystallised if they are not being paid. Amendment No. 378 seeks an explanation of why that is not the case.
 Amendment No. 379 is about valuing uncrystallised rights for the purpose of primary protection, which provides for the A-day value of the benefits to be indexed until retirement. There may be a technical problem, in that clause 201 deals with the calculation in the normal course of events, but in this case a problem could arise because of the assumption that on A-day the member becomes entitled to benefits even if they are under 50 and in good health. In such 
 circumstances, the scheme may apply reduction for early repayment—that is discussed in paragraph 18—thereby massively reducing the value of the protection, as even if the pension is deferred, it would be increased in deferment by limited indexation and paid unreduced. If the value of the primary protection is actuarially reduced, by the time the benefit is paid it is almost certain to exceed the level of primary protection anyway. The amendment is therefore designed to ensure that no actuarial reduction is applied when valuing such benefits for this purpose. It appears that one of the Government amendments may address that point in a slightly different way. 
 Amendment No. 380 is purely a drafting amendment. Paragraph 8 is subject to paragraph 9, but paragraph 9 merely envisages a value calculated in accordance with paragraph 8 being higher. That seems logically incoherent. Presumably, paragraph 9 is intended to say something along the lines of, ''as if the effects of this paragraph were ignored.'' 
 Amendments Nos. 382 and 383 are designed to achieve fairness in protection arrangements if lump sums have already been taken. They are about the valuation of payments and benefits on A day for the purpose of primary protection. 
 The suggested 25 to 1 factor is different from the normal 20 to 1 factor because it addresses problems related to age that we have already discussed. The 25 to 1 factor goes beyond that by assuming that everyone with a pension in payment took exactly the same proportion of the pension previously as a tax-free lump sum. Clearly, some people may not have taken a lump sum and some may have taken more, some may have taken less, so the amendment to paragraph 19, which is also about how benefits in payment are valued irrespective of the form of protection sought, introduces the new pre-commencement pension factor—PCPF—that we touched on last week. 
 Essentially, there is no allowance for the unfairness that could occur depending on how much or how little tax-free lump sum has been taken. That is an issue that must be addressed. Amendments Nos. 389 to 391 relate to the same factors.

Ruth Kelly: We now come to a group of amendments covering the valuation of rights for primary protection. We received representations from the Faculty of Actuaries and the Institute of Actuaries that cover the same ground as changes to valuation that we discussed and agreed when debating clause 171.
 I will not detain the Committee with a detailed description of what is achieved by our amendments, merely to say that the mechanism is the same for transitional protection as for the unauthorised payment surcharge and the valuing of direct benefit rights for the purposes of the annual allowance that we discussed alongside the amendments to clause 177. 
 Taken with the previous amendments and new clause 17, our amendments clarify the valuation rules in all areas and provide a simple and consistent approach to valuation across the piece. Government 
 amendment No. 503 clarifies beyond doubt the test of the maximum benefits to be valued, in words with which the industry is familiar. 
 We received several representations about paragraph 9 of schedule 34 and how in some cases it could bring about a perverse result if someone's earnings had dropped and there had been a transfer of large pension rights from a previous employment. Through our amendments we have therefore taken a fresh approach to paragraph 9. All the actual rights under the employment will be valued on the basis of the member having reached his expected retirement date on 5 April 2006. 
 In order to stop manipulation of retirement ages, which was something recognised by the actuaries in their letter to the Revenue, the member's normal retirement date will be that which was his under the scheme on 10 December 2003, or 60 if he joined after that date. The value will be tested against the maximum pension that the scheme could pay the member on 5 April 2006 without losing tax approval. That approach is fair, the actuaries support it and I commend our amendments to the Committee. 
 Our amendments achieve pretty much the same results as those tabled by the hon. Gentleman, therefore I ask him not to press amendments Nos. 379 and 380. There are further Opposition amendments to paragraphs dealing with valuing benefits for transitional protection. We have already debated using single factors for simplicity, and that is what amendments Nos. 382, 383 and 389 to 391 seek to do. They replace a factor for valuing pensions already in payment of 25 with a factor set by the Government Actuary. 
 The Association of Consulting Actuaries recommended the 25 to 1 factor for valuing pensions already in payment. That is higher than the pensions factor, because it assumes that a lump sum has already been taken. I agree with the hon. Gentleman that it will not have been in all cases. He suggests that the matter needs to be addressed because of the unfairness that arises, but it is not clear how that would be done. The alternative of requiring members to acquire, and schemes to provide, proof of lump sums would be an administrative burden of some complexity, and it would all be for nothing. 
 We must value pensions already in payment, so that someone with a large pension has an opportunity to contribute another £1.5 million with tax relief. Valuing pensions in payment at 25 to 1 allows people to top up existing pension savings to the lifetime allowance, but we also take the already crystallised pension into account for the purpose of providing transitional protection. Therefore, as the provision relates to both sides of the equation, it will have no adverse effect overall. I therefore ask the hon. Gentleman to seek to withdraw the amendment. 
 The hon. Gentleman outlined the purpose behind amendment No. 378. Sub-paragraph 8(4), which it seeks to delete, provides clarity. It states clearly that funds in draw-down are crystallised funds and are therefore to be valued as such under paragraph 10 using a factor of 25 to 1. One effect of the amendment 
 would be that funds in draw-down would be treated as uncrystallised pension rights and valued at 20 to 1. However, that would introduce an additional distortion between pensions in payment and pensions moving into draw-down. It would be unfair and unreasonable to value funds in draw-down using a factor of 20, the factor for uncrystallised pensions, rather than 25, the factor for crystallised pensions. It would create an anomaly in the valuation rules for draw-down pensions and other pensions in payment. As the higher factor has already been set at 25 to take account of tax-free lump sums already paid, that factor should be used to value funds in draw-down. If the lower factor of 20 is used to value funds in draw-down, the absolute value of an individual's total pension rights would be smaller than if the higher factor were used. It follows that the amendment would cause a reduction in the value of an individual's pension rights for the purposes of primary protection. 
 Government amendment No. 503 deals with a point raised by several respondents to the Revenue. There is an issue about whether a pension that a person receives as a result of the death of a spouse or someone on whom they were dependent is counted as a pension for the purposes of transitional protection and the ongoing operation of the new system. It was not our intention that it should be, and the amendment puts the matter beyond doubt. I therefore commend it to the Committee.

Howard Flight: I am glad that the Minister has confirmed that the Government's amendments address the point raised in amendment No. 379. The Minister has convinced me on amendment No. 378, or at least answered the question, and I would not want to propose anything that damaged people's positions.
 I am not sure that the Minister has convinced me on amendments Nos. 382, 383 and 389 to 391. Her main point is that that the 25 to 1 factor assumes that people have already taken their maximum tax-free lump sum. That is saying that, for those who have not, hard luck. However, the point is not sufficiently material that we would wish to put it to a vote. I therefore beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Amendments made: No. 503, in 
schedule 34, page 467, line 22, leave out from '199)' to first 'an' in line 33 on page 468 and insert 
 'on the assumption that the individual became entitled to the present payment of benefits in respect of the rights on that date. 
 (6) Section 201 has effect for the purposes of sub-paragraph (5) as if the reference to such age (if any) as must have been reached to avoid any reduction in benefits on account of age in paragraph (a) of section (Valuation assumptions) were to the relevant age; and for this purpose ''the relevant age'' is— 
 (a) if on 10th December 2003 the terms of the arrangement made provision for a reduction in the amount of benefits payable in respect of rights under the arrangement on account of the holder of the rights being below a particular age, that age, and 
 (b) otherwise, 60. 
 9 (1) This paragraph applies if any of the individual's uncrystallised rights on 5th April 2006 are rights under one or more arrangements under a pension scheme or schemes within paragraph 1(1)(a) to (d). 
 (2) The value of the individual's uncrystallised rights on 5th April 2006 under the arrangement, or the aggregate of the values of the individual's uncrystallised rights on 5th April 2006 under such of the arrangements as relate to a particular employment, is the lower of— 
 (a) the value, or the aggregate of the values, calculated under paragraph 8, and 
 (b) the amount arrived at in accordance with sub-paragraph (3). 
 (3) The amount arrived at in accordance with this sub-paragraph is— 
 20{**multi**}MPP 
 where MPP is the maximum permitted pension. 
 (4) ''The maximum permitted pension'' means the maximum annual pension that could be paid to the individual on 5th April 2006 under the arrangement or arrangements if it or they were made under a pension scheme within paragraph 1(1)(a) without giving the Board of Inland Revenue grounds for withdrawing approval of the pension scheme under section 591B of ICTA. 
 (5) For the purposes of sub-paragraph (4) it is to be assumed— 
 (a) if the individual was in the employment to which the arrangement or arrangements relates or relate on 5th April 2006, that the individual left the employment on that date, and 
 (b) if the individual had not reached the lowest age at which a pension may be paid under a pension scheme within paragraph 1(1)(a) to a person in good health without giving the Board of Inland Revenue grounds for withdrawing the approval of the pension scheme, that that fact would not give the Board such grounds. 
 (6) For the purposes of this paragraph'.—
 No. 504, in 
schedule 34, page 468, line 39, leave out 'an' and insert 'the'.— 
No. 505, in 
schedule 34, page 469, line 16, at end insert— 
 '(2A) But a pension, annuity or right is not a relevant existing pension if entitlement to it was attributable to the death of any person.'.—[Ruth Kelly.]

Ruth Kelly: I beg to move amendment No. 506, in
schedule 34, page 469, line 44, leave out from beginning to end of line 2 on page 470 and insert 
 'if notice of intention to rely on it is given to the Inland Revenue in accordance with regulations made by the Board of Inland Revenue. 
 (2) But this paragraph ceases to apply if— 
 (a) relevant benefit accrual occurs under the arrangement, or any of the arrangements (see paragraph 13), 
 (b) a transfer of sums or assets held for the purposes of, or representing accrued rights under, the arrangement or any of the arrangements is made that is not a permitted transfer, or 
 (c) an arrangement relating to the individual is made under a registered pension scheme otherwise than solely for the purposes of a permitted transfer.'.

John Butterfill: With this it will be convenient to discuss the following:
 Government amendment No. 508. 
 Amendment No. 384, in 
schedule 34, page 470, line 20, at end insert 'in a prescribed manner'.
 Government amendments Nos. 571, 572, 511 and 573. 
 Amendment No. 386, in 
schedule 34, page 472, line 6, leave out 'pregnancy or childbirth' and insert 
 'being on maternity leave, adoption leave, parental leave, paternity leave (each as defined in accordance with the Employment Rights Act 1996) or in other prescribed circumstances'.
 Government amendments Nos. 513 to 519.

Ruth Kelly: Government amendment Nos. 506, 508, 511, 513, 519 and 571 to 573 alter the way that enhanced protection arrangements operate in relation to calculating benefits accrued by defined benefit or cash benefit schemes. The changes come about because of a late representation by the Association of Consulting Actuaries. It was concerned that the proposals for calculating earnings after 5 April 2006 would be administratively burdensome.
 As set out in the December 2003 consultation paper, enhanced protection was a simple proposition. There is no test of the pension fund against the lifetime allowance in return for there being no relevant benefit accrued after 5 April 2006. Schedule 34 as it stands attempts to do the same for defined benefit and cash benefit arrangements, by specifying that the pre-A-day service, the scheme accrual rate and what constitutes pensionable pay cannot change and by setting a limit on the amount of earnings that can be pensioned. 
 The amendments take a different approach to the same issue. The member's rights are valued on 5 April 2006. They can increase thereafter in line with the retail prices index without endangering enhanced protection but, as an alternative, at the first benefit crystallisation event, the member's rights on 5 April 2006 can be recalculated according to various assumptions. Provided that the aggregate of the benefits taken do not exceed the higher of those two amounts, enhanced protection still applies and is not lost. 
 The amendments also restrict the transfers that can be allowed in order to retain the right to enhanced protection. The purpose of the amendment is to avoid transfers being used to manipulate valuations and, thus, increase the protection given. 
 The amendments seek to clarify how enhanced protection works and I commend them to the Committee. 
 That brings me to two amendments tabled by the hon. Member for Arundel and South Downs. Amendment No. 384 deals with the surrender of excess pension rights. That is where, at A-day, someone has accrued pension rights in an occupational pension scheme in excess of what would have been allowed under Revenue rules. 
 I believe that it is common ground between us that such excess rights should be surrendered before an individual acquires enhanced protection. Otherwise, we would be giving protection to rights in excess of what the member was entitled to. The amendment seeks to put conditions on the surrender of such rights. 
 I agree that the reduction of pension rights should be dealt with in a proper and consistent manner, but I do not believe that it is necessary for the Inland Revenue or the Treasury to prescribe the conditions and regulations. DWP legislation already prescribes the circumstances in which an individual may surrender pension rights. Inland Revenue officials are liaising with DWP officials on the matter to clarify whether any amendment to DWP regulations will be needed to facilitate the surrenders envisaged in schedule 34. I believe that the proper place for 
 requirements concerning surrenders of pension rights is in DWP regulations and scheme rules. 
 I look forward to hearing whether those points meet the hon. Gentleman's concerns.

Howard Flight: As I understand it, one of the Government amendments addresses the point that is raised in amendment No. 386, which is grouped with these amendments.

Ruth Kelly: I am just about to come to amendment No. 386. I appreciate fully the hon. Gentleman's intentions in tabling it, but I believe that it is drawn too widely. Only absence due to ordinary maternity leave, ordinary adoption leave and paternity leave as defined in the Employment Rights Act 1996 give rights to adjustments in pensionable earnings. In drafting Government amendments Nos. 512 and 508, we took into account the purpose of his amendment and permitted adjustments to pensionable earnings for absences due to pregnancy, maternity, paternity and adoption. The Government amendments are better focused than his and I therefore commend them to the Committee.

Howard Flight: Amendment No. 384 raises an issue that the Financial Secretary recognises must be addressed. In essence, she has assured us that it will be covered by DWP arrangements, so it does not need to be covered in the Bill. Government amendments Nos. 512 and 508 deal with my points about relevant earnings that may be lower for allowable reasons beyond just pregnancy or childbirth.
 Amendment agreed to. 
 Amendments made: No. 508, in 
schedule 34, page 470, line 12, leave out from beginning to end of line 34 and insert— 
 '(a) the value of the uncrystallised rights of the individual on 5th April 2006 under an arrangement, or 
 (b) the aggregate of the values of the uncrystallised rights of the individual on 5th April 2006 under arrangements, 
 is arrived at in accordance with paragraph 9 unless such rights as, in accordance with regulations made by the Board of Inland Revenue, are to be treated as representing the relevant excess have been surrendered. 
 (6) In sub-paragraph (5) ''the relevant excess'' means the amount by which the value of— 
 (a) the individual's uncrystallised rights, or 
 (b) the aggregate of the values of the individual's uncrystallised rights, 
 (as arrived at in accordance with paragraph 9) exceeds what it would be if arrived at under paragraph 8. 
 (7) For the purposes of this paragraph and paragraphs 13 and 13A, a transfer of sums or assets held for the purposes of, or representing accrued rights under, an arrangement is a permitted transfer if— 
 (a) all sums and assets held for the purposes of, or representing rights under, the arrangements relating to the individual under the pension scheme under which the arrangement is made are transferred by the transfer, 
 (b) the sums or assets held for the purposes of, or representing accrued rights under, the arrangement are transferred so that sub-paragraph (8) applies in relation to them, and 
 (c) the aggregate of the amount of those sums and the market value of those assets'. 
No. 571, in 
schedule 34, page 470, line 36, at end insert— 
 '(8) This sub-paragraph applies in relation to sums or assets held for the purposes of, or representing accrued rights under, the arrangement if— 
 (a) they are transferred so as to become held for the purposes of a money purchase arrangement that is not a cash balance arrangement, or two or more more money purchase arrangements that are not cash balance arrangements, under a registered pension scheme or recognised overseas pension scheme, or 
 (b) where the transfer occurs in connection with the winding up of the pension scheme under which the arrangement is made and the arrangement is a cash balance arrangement or a defined benefits arrangement, they are transferred so as to become held for the purposes of, or to represent rights under, a cash balance arrangement or defined benefits arrangement relating to the same employment as the arrangement and made under a registered pension scheme or recognised overseas pension scheme. 
 (9) Where there is a permitted transfer— 
 (a) if the transfer is a permitted transfer by virtue of sub-paragraph (8)(a), this paragraph (and paragraphs 13 and 13A) apply in relation to the arrangement, or each of the arrangements, to which the transfer is made, and 
 (b) if the transfer is a permitted transfer by virtue of sub-paragraph (8)(b), this paragraph (and paragraphs 13 and 13B) apply as if the arrangement to which the transfer is made were the same as that from which it is made.'. 
No. 572, in 
schedule 34, page 470, line 38, leave out from 'arrangement' to 'a' in line 8 on page 471 and insert— 
 (a) in the case of a money purchase arrangement that is not a cash balance arrangement, if a relevant contribution is paid under the arrangement (see paragraph 13A), and 
 (b) in the case of a cash balance arrangement or defined benefits arrangement, if, when a benefit crystallisation event or transfer that is a permitted transfer by virtue of paragraph 12(8)(a) (a ''relevant event'') occurs in relation to the individual and the arrangement, the relevant crystallised amount exceeds the appropriate limit (see paragraph 13B). 
 13A For the purposes of paragraph 13(1)(a)'.
 No. 511, in 
schedule 34, page 471, line 18, leave out 'sub-paragraph (1)(b)' and insert 'paragraph 13(1)(a)'.
 No. 573, in 
schedule 34, page 471, line 26, leave out from beginning to end of line 11 on page 472 and insert— 
 '13B (1) For the purposes of paragraph 13(1)(b) ''the relevant crystallised amount'' is— 
 (a) if the relevant event is the first relevant event occurring in relation to the individual and to the arrangement or any other cash balance arrangement or defined benefits arrangement related to the arrangement (''the first relevant event''), the amount crystallised by that event, and 
 (b) otherwise, the aggregate of the amount crystallised by the relevant event and the amount crystallised by the relevant event, or by each of the relevant events, which has or have previously occurred in relation to the individual and to the arrangement or any other cash balance arrangement or defined benefits arrangement related to the arrangement. 
 (2) If the relevant event is a permitted transfer which is not a benefit crystallisation event, sub-paragraph (1) applies as if the amount crystallised by the event were the aggregate of— 
 (a) the amount of any sums held for the purposes of, or representing accrued rights under, the arrangement, and 
 (b) the market value of any assets held for the purposes of, or representing accrued rights under, the arrangement. 
 (3) For the purposes of this paragraph (and paragraph 15) another arrangement is related to the arrangement if— 
 (a) the other arrangement relates to the individual, and 
 (b) both the arrangement and the other arrangement relate to the same employment; 
 and whether an arrangement relates to an employment is to be determined in accordance with paragraph 9(6). 
 (4) For the purposes of paragraph 13(1)(b) ''the appropriate limit'', in relation to a relevant event, is the greater of— 
 (a) the value of the individual's rights on 5th April 2006 under the arrangement, or (where there is or are one or more other cash balance arrangements or defined benefits arrangements related to the arrangement) the aggregate of the value of the individual's rights under the arrangement and the other arrangement or arrangements, arrived at in accordance with paragraphs 8 and 9, as increased by the relevant indexation percentage (see sub-paragraph (5)), and 
 (b) what would be the value of those rights, so arrived at, on the assumptions specified in sub-paragraph (6). 
 (5) For the purposes of sub-paragraph (4)(a) ''the relevant indexation percentage'', in relation to a relevant event, means whichever is the greatest of— 
 (a) the percentage by which an amount would be increased if it were increased for the period beginning with 6th April 2006 and ending with the date on which the relevant event occurs at an annual rate of 5%, 
 (b) the percentage by which an amount would be increased if it were increased for that period at an annual percentage rate referred to in regulations made by the Board of Inland Revenue, and 
 (c) the percentage by which the retail prices index for the month in which the relevant event occurs is higher than that for April 2006. 
 (6) The assumptions referred to in sub-paragraph (4)(b) are— 
 (a) that the individual's age on 5th April 2006 were what it is at the time of the first relevant event (so that neither paragraph 8(6) nor section (Valuation assumptions)(a) applies in arriving at what would be the value of the rights under paragraph 8), and 
 (b) that the amount of the earnings which would have fallen to be taken into account under the arrangement for calculating the amount of benefits payable to or in respect of the individual (if the individual became entitled to the present payment of benefits in respect of the rights under the arrangement on that date) were the lesser of the two amounts specified in sub-paragraph (7). 
 (7) The amounts referred to in sub-paragraph (6)(b) are— 
 (a) the current amount of the relevant pensionable earnings immediately before the first relevant event, and 
 (b) the post-commencement earnings limit (see paragraphs 15 and 16). 
 (8) But sub-paragraph (6)(b) applies in relation to an arrangement under a pension scheme within paragraph 1(1)(c) or (e) as if for ''the lesser of the two amounts specified in sub-paragraph (7)'' there were substituted ''the amount specified in sub-paragraph (7)(a)''. 
 (9) In this paragraph ''the relevant pensionable earnings'' means the description of earnings (or the portion of the description of earnings) of the individual by reference to which the amount of benefits payable to or in respect of the individual would have fallen to be calculated if the individual became entitled to the present payment of benefits in respect of the rights under the arrangement on 5th April 2006. 
 (10) For the purposes of sub-paragraph (7)(a) ''the current amount'' of the relevant pensionable earnings immediately before the first relevant event is the amount of the relevant pensionable earnings which, at that time, would fall to be taken into account in calculating the amount of benefits payable to or in respect of the individual under the arrangement if the individual became entitled to the present payment of benefits at that time (but subject to sub-paragraph (11)). 
 (11) If at that time the individual is absent from work in connection with pregnancy, maternity, paternity or adoption, the 
current amount of the relevant pensionable earnings at that time includes what would be likely to be included in that amount if the individual were not so absent.'.
 No. 513, in 
schedule 34, page 472, line 14, leave out 
 'the pension scheme under which the arrangement' 
 and insert 
 'any pension scheme under which the arrangement or any other arrangement related to the arrangement'.
 No. 514, in 
schedule 34, page 472, line 18, leave out 'benefit crystallisation' insert 'first relevant'.
 No. 515, in 
schedule 34, page 472, line 20, leave out 'relevant earnings' and insert 
 'individual's employment income from the employment to which the arrangement relates'.
 No. 516, in 
schedule 34, page 472, line 23, leave out from second 'the' to end of line 24 and insert 'first relevant event occurs.'.
 No. 517, in 
schedule 34, page 472, line 27, leave out 'relevant earnings are' and insert 
 'individual's employment income from the employment to which the arrangement relates is'.
 No. 518, in 
schedule 34, page 472, line 28, at end insert— 
 '(7) For the purposes of this paragraph and paragraph 16 the amount of the individual's employment income includes, in relation to any time when the individual is absent from work in connection with pregnancy, maternity, paternity or adoption, what would be likely to be included in that amount if the individual were not so absent.'.
 No. 519, in 
schedule 34, page 472, line 40, leave out 'relevant earnings' and insert 
 'individual's employment income from the employment to which the arrangement relates'.—[Ruth Kelly.]

Ruth Kelly: I beg to move amendment No. 520, in
schedule 34, page 473, line 31, leave out 'and (5) or paragraph' and insert 'or'.

John Butterfill: With this it will be convenient to discuss the following:
 Government amendments Nos. 521 to 523. 
 Amendment No. 393, in 
schedule 34, page 475, line 7, after 'scheme', insert 
 'or a contractual right under his contract of employment with a sponsoring employer'.
 Government amendment No. 524.

Ruth Kelly: Pensions receive favourable tax treatment to encourage people to save for retirement. The deal between the Government and the pension saver is that that favourable tax treatment is conditional on using most of the savings built up in that way to generate retirement income, and not for other purposes. As part of the reform of tax rules for pensions, we intend to set the minimum age at which tax-privileged pensions can be drawn at 55 from 2010. That minimum benefit age will apply to all pensions that qualify for tax relief. Moving the minimum benefit age to 55 is not designed to prevent people from stopping work when they are younger than 55, if they can afford to do so using resources other than
 pensions, but they will not be able to use pensions built up with tax relief until the age of 55.
 It would, of course, be unfair to introduce such a change in a way that cut across people's contractual rights to take an occupational pension at an earlier age. People with such rights may well have planned for their future on that basis, or even taken redundancy from their employer in the expectation that their occupational pension would become payable before they reached the age of 55. Because of that, provisions in the schedule protect the rights of employees in occupational pension schemes to retire before 55, provided certain conditions are met: first, that the right was in place before 10 December 2003 and, secondly, that the right is an absolute right and not subject to any conditions such as the consent of the employer. 
 Amendments Nos. 520 to 522 are tidying-up amendments that correct and clarify references to minimum pension age. Following representations on the December 2003 consultation document, we are now proposing a relaxation of the original proposals. 
 Amendments Nos. 523 and 524 would extend the protection to individuals who join their occupational pension scheme after 10 December 2003 but before 6 April 2006—A-day. They will be able to retire at the scheme's minimum pension age or normal retirement age provided that on 10 December 2003 the occupational pension scheme offered such a date to all existing members. 
 Amendment No. 393 is also about rights to take an early pension. We have always been clear that the contractual rights under discussion are those conveyed by membership of an occupational pension scheme rather than by a contract of employment, on the basis that contractual rights in an occupational pension scheme apply to all members, while rights in a contract of employment apply on an individual basis at the discretion of the employer. Those latter rights could, for instance, be used to sugar a redundancy programme, or finesse the retirement package of senior executives. We see no reason to give protection to such rights. 
 The provisions in schedule 34 and our amendments are all in line with the Government's policy to encourage greater participation in the labour market by older workers and protect existing contractual rights to draw a pension from the age of 50. I therefore commend them to the Committee. I hope that, in view of the generous proposals we are putting forward, the hon. Gentleman will not choose to press his amendments.

Howard Flight: I am glad to note the Government's tidying-up of some aspects of who will and will not be affected by the change of the minimum retirement age from 50 to 55.
 Amendment No. 393 is designed to deal with a situation that the Government have not addressed and towards which the Financial Secretary has stated that they are not sympathetic. The concession, as defined in schedule 34 and the Government amendments, assumes that all such rights to retire at 50 will be written into the pension scheme. They may arise in the contract of employment, however. The employer has 
 the discretion to allow early retirement from the age of 50 but, as a matter of contract, may have confirmed that, in the event of redundancy, benefits can be taken without reduction from the age of 50. Our amendment seeks to bring that situation within the protected territory. 
 If someone were fired at 50—not on the ground of ageism, I hope—and they have been led to understand that, if that happened, they would have the right to take a pension at that age, it is only fair that they be included in the protection provided. I was not totally clear about the Financial Secretary's reaction to that, so I ask for her clarification.

Ruth Kelly: We have always been clear that the contractual rights being protected are those conveyed by membership of an occupational pension scheme. The hon. Gentleman refers to a discretionary right granted by an employer as part of a redundancy package. That is not the sort of right that we seek to protect. Does he really think that such a situation should be protected under the transitional arrangements? The employer could use those rights to sweeten a redundancy package or as part of a remuneration package of a senior executive. We sought to exclude such a situation from our proposals.

Howard Flight: I accept to some extent what the Financial Secretary has said, but the Government ought to consider the other side of the coin. From the perspective of the employee, he has been led to understand that, if the employer fires him, he will be able to draw his pension at the age of 50. It will be a nasty experience if he gets fired and subsequent legislation has changed that situation.
 I hope that the Government think again on that point and consider whether they can craft something that avoids the exploitation that they are seeking to avoid but deals fairly with individuals in that situation. I cannot see the point of principle against dealing fairly with individuals in that situation.

Ruth Kelly: I do not quite understand the cut-off point in the hon. Gentleman's proposal, or why he thinks that, if someone is fired, it is appropriate to take a pension at the age of 50, rather than at a different age. We have, as a point of principle and Government policy, suggested that the minimum retirement age be raised to 55, and we see no reason to treat individuals in the unfortunate situation that he described any differently merely because they have been fired. Presumably, their employer would offer individuals in that situation a different redundancy package in future.
 As a point of principle, the Government are increasing the minimum retirement age to 55. It is on that basis that we will be able to offer many other benefits, such as flexible employment. Where there is a clear contractual right to draw a pension earlier, we will seek to preserve that right in the legislation.

Howard Flight: I am surprised that the Financial Secretary is not more sympathetic to the point that I am making. It is simple. It arises where a person has
 been a member of a business and its pension scheme for a long period. While there is no specific rule in the pension scheme, the person has been told by the employer that, in the event of being fired at 50, the employer will allow retirement at that age. It is common to have such an understanding. In that situation, it would be wholly wrong to blast in and say, ''Hard luck, mate.''
 I think that the Financial Secretary is wrong to assume that there will automatically be redundancy payments to make up for that. The business may not be able to afford them. Therefore, unless the Government have something to offer to deal with those situations, where appropriate, we will want to vote on the amendment. 
 Amendment agreed to. 
 Amendment made: No. 479, in 
schedule 34, page 474, line 28, leave out 'on 5th April 2006' and insert 
 'at any time (treating the references there to 5th April 2006 as to that time)'.—[Ruth Kelly.]

Howard Flight: I beg to move amendment No. 392, in
schedule 34, page 474, line 28, at end insert— 
 'Pre-1989 individuals 
 20 (1) This paragraph applies to any individual who was on 5th April 2006 a person in relation to whom section 590C of ICTA (earnings cap) did not have effect (''a pre-1989 individual'') in relation to the pension scheme under which the arrangement was made (''the pre-1989 scheme''). 
 (2) Notwithstanding anything else in this Act, no charge to income tax will arise in respect of benefits paid to in respect of a pre-1989 individual under the pre-1989 scheme except to the extent that a charge to income tax would have arisen in any event.'.

Howard Flight: This is the amendment regarding which I made some comments when we debated clause 269. It is designed to permit continued grandfathering for all people in pre-1989 schemes. The Financial Secretary was silly to say, ''We can't possibly do that, or our simplification wouldn't work.'' That seems wrong. The new simplification would go ahead, but a fair, non-retrospective provision would be made available for the relatively small number of people who continue to be members of pre-1989 schemes that were grandfathered.
 I have already said that, particularly in respect of pension saving, the provision is in principle retrospective. It is unfair suddenly to say to people, many of whom will be reasonably close to retirement, ''I'm sorry, mate. You were grandfathered back in 1989, but we are putting an end to that. The effect will be negative as long as there are no more contributions to your scheme from here on. If there are, you will be caught.'' Therefore, the provision cuts off the employer's contractual promise to go on paying into the scheme until the employee retires. No doubt the Government's view is that the provision is mostly to do with fat cats. The view may be, ''They don't have a bad deal anyway, so what the hell? They don't matter.'' It is not our job to protect fat cats on principle.

Mark Todd: Why not?

Howard Flight: I should be delighted to protect the hon. Gentleman. However, there is an important point of principle here. If a clear precedent of grandfathering has been set—as grandfathering was introduced 15 years ago, it mostly affects those who are approaching retirement—it is morally wrong suddenly to change things. Whatever the Minister may say, it amounts to retrospection.

Rob Marris: Not today, but earlier in our proceedings on the pensions part of the Bill, the hon. Member for Arundel and South Downs differed slightly from the hon. Member for Tatton (Mr. Osborne) and proposed a rough and ready approach to certain provisions. Why is he now not prepared to have a rough and ready approach to those whom he describes as fat cats?

Howard Flight: I recollect using the phrase ''rough and ready''. I cannot recollect the context, but I believe that I was being descriptive, rather than supporting such an approach. I seem to remember saying something along the lines that people may accept a degree of rough and ready justice. In fairness, it is different having a rough and ready approach, whether it is right or not, for people who have not been promised something else previously. I am surprised that, as a lawyer, the hon. Gentleman should rest comfortable with a complete disregard of what was in effect a legal principle laid down in 1989 that a person in a scheme before that date who stayed in the scheme would not be subject to the changes.

Norman Lamb: Does the hon. Gentleman have any idea of the number of people likely to be affected?

Howard Flight: I do not think that anyone has a precise number, but it must be extremely small. First, the Government say that only a limited number of people are affected by the new lifetime limit anyway and, secondly, the provision relates only to those who have continued to work in the same business and have been in the same pension scheme since 1989. Therefore, implicitly, it is a relatively small proportion of those who the Government are satisfied are affected by the lifetime cap. The fact that the absolute amounts of money are not that huge lends support to the argument that it would have been a more principled stance to stick by the existing rules for those people.

Rob Marris: The hon. Gentleman, in responding to my intervention, suggested that I had put forward a position. I recall that I merely asked him a question, to which he replied.
 There is a drafting error in amendment No. 392—perhaps the error is in the amendment paper. After the words 
''arise in respect of benefits paid to''
 in proposed new paragraph 20(2), the word ''or'' is missing.

Howard Flight: I thank the hon. Gentleman for his excellent legal drafting abilities. He is correct.

Quentin Davies: One more point must be made. It is clear from the debate that a relatively small number of people would be affected by the amendment. If we do
 not accept my hon. Friend's amendment, we may create an incentive for people who are highly paid, who are in danger of going above the lifetime earnings limit, who have been with the same employer since 1989 and who were already highly paid at that time to leave their employment by A-day and to take their benefits in order to preserve them. It seems perverse to force highly paid people, who may be making a great contribution to the economy, reluctantly to leave their job simply because the financial penalties of remaining in it and in their pension scheme would be considerable. They would incur a great opportunity cost if they remained.
 It is important that we never create in our tax law an incentive for people to behave in an economically perverse manner. Nothing can be more perverse than someone leaving employment and going into idleness or unemployment, or taking their pension earlier than they otherwise would have wished. I hope that the Financial Secretary will address that point when she responds.

Ruth Kelly: The amendment seeks to retain tax regimes that were in place prior to 1989. It would defeat the key objective of this reform, which is tax simplification. Pre-1989 members come in at least two varieties: members who joined their scheme between 1970 and 1987, and those who joined between 1987 and 1989. There are also some members of the pre-1970 regime, who are referred to as old code members.

Norman Lamb: I wonder whether the Financial Secretary could indicate whether the Government have made any assessment as to the number of people involved in those categories.

Ruth Kelly: We certainly have made such an assessment. The intention behind involving the National Audit Office was to verify the number of people who were likely to be affected. It suggested a total of some 10,000, at about 1,000 a year.
 The pre-1970 regime came to an end 34 years ago, yet there are still old code members. Insurance companies, pension schemes and the Revenue must retain knowledge of how that regime operated and how it interacted with the successor regimes. The amendment tabled by the hon. Member for Arundel and South Downs would force the pensions industry and the Revenue to do the same for pre-1989 members. It would involve running two systems in parallel for the old regime and the new, simplified one. 
 If the hon. Gentleman will not listen to me, perhaps he will heed the words of people in the pensions industry. Only a small minority of people recommended his approach. The Association of Independent Financial Advisers stated: 
''These proposals are refreshingly radical, especially in sweeping away the complexity of numerous layers of legislation. The growth and promotion of private pension provision should be improved.''
 The Society of Pension Consultants stated: 
''The proposals should lead to a substantial reduction in administrative costs for employers, pension funds and pension providers. Even more importantly, for the great majority of people, they will sweep away many of the regulatory restrictions which make pensions baffling and discouraging for many.''
 Those are the industry's words, not mine. Simplification will reduce administration and make pensions easier to understand for the vast majority.

Quentin Davies: The Financial Secretary is enjoying the laudatory comments that she is quoting, but do they not relate only to the Government's reforms as a whole—the system of having a new lifetime cap, and the simplifications, to which we all pay tribute? They are surely not germane to the point about the treatment of members of pre-1989 schemes. I cannot believe that the flattering remarks that she is reading make any sense if they simply narrowly apply to that special case.

Ruth Kelly: I am about to deal with the point that was raised—[Interruption.] Hon. Members should contain themselves and listen to the response. I was making the point that, in the past, every single pension tax reform maintained the previous system. That is why we have ended up with eight separate pension regimes. The pension industry was practically in despair. All the major representatives came to me, on several occasions, and said, ''Please go ahead with your pension reform proposals. We desperately need a simpler system.'' Operating the previous eight regimes, and taking a further one forward, would be extremely disappointing and would not contribute to our aim of increasing pension saving in the future, nor would it reduce the administrative costs on schemes, which we consider quite an important part of our proposals.
 Let us see what the amendment tabled by the hon. Member for Arundel and South Downs would mean in practice. I will not go through all the detail of how his amendment might work. However, I will briefly outline some of the areas where complications would arise if we were to retain the previous, pre-1989 regime. 
 Take the example of continuous service. If the member's employment status changes, a view would have to be taken on whether he had retained his pre-1989 status. Concurrency—the ability to hold an occupational scheme pension and a personal pension at the same time—is a feature of the new regime, but not of the old. Which rule would apply? Would every person joining a personal pension have to be asked if they were a pre-1989 member? Flexible retirement for occupational scheme members is allowed under the new system, but not the old. 
 Retained benefits—I am delighted to see you in the Chair, Sir John, as I know that you have a keen interest in abolishing the retained benefits rule, as has the hon. Member for Arundel and South Downs—would have to be kept and expanded to deal with benefits accrued after 6 April 2006. Which lump sum limit would apply? Would it be 25 per cent., as under the new system, or the greater of 3N over 80 or the commutation of 2.25 times the maximum pension commuted at 12 to 1? 
 I could go through all the other areas where complexity would arise. It is not a silly point to say that the system that the hon. Gentleman proposes 
 would introduce vast complexity to the arrangements. It would drag us back to the previous set-up, which the pension industry itself wants abolished. 
 The alternative proposition is to offer people protection for rights that they have accrued under the previous regime. We are offering not only fair protection rights for previously accrued benefits, but extremely generous transitional arrangements to protect rights that have been accrued. Indeed, if someone registers for enhanced protection and they have already accumulated a lump sum of £1.5 million or above, they will be able to see that grow on the stock market and not have it tested in the future. 
 On the point raised by the hon. Member for Grantham and Stamford (Mr. Davies), the system that we propose is more generous to people currently in work. Under the new rules, they could take their benefits and continue to work, because we are introducing flexible retirement for the first time through the proposals. That section of the population would clearly benefit from the new regime. 
 The rationale behind our regime is extremely clear. It has been welcomed by all the major representative groups in the pension industry, as well as individual pension providers, who will see their administrative costs fall. Not only is it radical, it is fair, and it is for that reason that I recommend it to the Committee.

Howard Flight: The hon. Member for North Norfolk (Norman Lamb) asked a perfectly good question of the Financial Secretary. She gave half the answer, which was about the 10,000 people affected by the new lifetime limit, and we already knew about them. She did not give any answer about how many of those people were in pre-1989 schemes. If she has that information, I would be grateful for it—my assessment being that the number will be relatively small.
 The Financial Secretary seems to forget that, as PricewaterhouseCoopers has pointed out, we have moved from eight to six schemes and that, as I pointed out, the transitional arrangements are extremely complex. Our amendment correctly involves the issues that she has raised, but, equally, the grandfathering of pre-1989 people could be done in a different way by making the transitional arrangements for them equivalent to being grandfathered. 
 The Financial Secretary boasts that the arrangements are generous. In some contexts they are, but, as she is well aware, for those people lucky enough to be in 1989 schemes they are not so generous. Those people are disadvantaged because if contributions to their pension schemes continue until they retire, they lose the protection against being capped that they were granted back in 1989. 
 It is pretty glib of the Financial Secretary to cast the matter off, saying, ''It's all better, really. It doesn't matter.'' She is deaf if she has not heard the dissatisfaction from those affected by the proposals. The general principle is one of endeavouring to simplify, although the simplification is not quite as great as she claims. She has quoted her laudatory congratulations, but they do not focus on the specific 
 issue and the Government could address a point of principle without over-cluttering the transitional arrangements. Therefore, we wish to put the matter to a vote. 
 Question put, That the amendment be made:—
The Committee divided: Ayes 6, Noes 13

Question accordingly negatived. 
 Amendments made: No. 521, in 
schedule 34, page 474, line 33, leave out '(except for' and insert 
 'of this Act (except for section 207(6) and'.
 Amendments made: No. 521, in 
schedule 34, page 474, line 33, leave out '(except for' and insert 
 'of this Act (except for section 207(6) and'.
 No. 522, in 
schedule 34, page 474, line 36, leave out 'and (5)'.
 No. 523, in 
schedule 34, page 475, leave out lines 1 to 8 and insert— 
 '(a) on 5th April 2006 the member had an actual or prospective right under the pension scheme to a pension from an age of less than 55, 
 (b) the rules of the pension scheme on 10th December 2003 included provision conferring such a right on some or all of the persons who were then members of the pension scheme, and 
 (c) such a right either was then conferred on the member or would have been had the member been a member of the scheme on that date.'.—[Ruth Kelly.] 
Amendment proposed: No. 393, in 
schedule 34, page 475, line 7, after 'scheme', insert 
 'or a contractual right under his contract of employment with a sponsoring employer'.—[Mr. Flight.]
 Question put, That the amendment be made:—
The Committee divided: Ayes 6, Noes 13.

Question accordingly negatived. 
 Amendment made: No. 524, in 
schedule 34, page 475, line 14, leave out sub-paragraphs (4) and (5) and insert— 
 '(4) The member's protected pension age is the age from which the member had an actual or prospective right to a pension under the pension scheme. 
 (5) But this paragraph does not have effect so as to give the member a protected pension age of more than 50 at any time before 6th April 2010.'.—[Ruth Kelly.]

Ruth Kelly: I beg to move amendment No. 525, in
schedule 34, page 476, line 41, leave out from beginning to end of line 2 on page 477 and insert 
 'have been entitled under the arrangement on 5th April 2006 on the assumption that the individual became entitled to the present payment of a lump sum under the arrangement on that date. 
 (7) In calculating an amount in accordance with sub-paragraph (6) the valuation assumptions apply but as if the reference to such age (if any) as must have been reached to avoid any reduction in benefits on account of age in paragraph (a) of section (Valuation assumptions) were to the relevant age; and for this purpose ''the relevant age'' is— 
 (a) if on 10th December 2003 the terms of the arrangement made provision for a reduction in the amount of benefits payable in respect of rights under the arrangement on account of the holder of the rights being below a particular age, that age, and 
 (b) otherwise, 60. 
 24A(1) This paragraph applies if any of the individual's uncrystallised lump sum rights on 5th April 2006 are rights under one or more arrangements under a pension scheme or schemes within paragraph 1(1)(a) to (d). 
 (2) The value of the individual's uncrystallised lump sum rights on 5th April 2006 under the arrangement, or the aggregate of the values of the individual's uncrystallised lump sum rights on 5th April 2006 under such of the arrangements as relate to a particular employment, is the lower of— 
 (a) the value, or the aggregate of the values, calculated under paragraph 24, and 
 (b) the maximum permitted lump sum. 
 (3) ''The maximum permitted lump sum'' means the maximum lump sum that could be paid to the individual on 5th April 2006 under the arrangement or arrangements if it or they were made under a pension scheme within paragraph 1(1)(a) without giving the Board of Inland Revenue grounds for withdrawing approval of the pension scheme under section 591B of ICTA. 
 (4) For the purposes of sub-paragraph (3) it is to be assumed— 
 (a) if the individual was in the employment to which the arrangement or arrangements relates or relate on 5th April 2006, that the individual left the employment on that date, and 
 (b) if the individual had not reached the lowest age at which a lump sum may be paid under a pension scheme within paragraph 1(1)(a) to a person in good health without giving the Board of Inland Revenue grounds for withdrawing the approval of the pension scheme, that that fact would not give the Board such grounds. 
 (5) Whether an arrangement relating to an individual relates to an employment is to be determined in accordance with paragraph 9(6).'.

John Butterfill: With this it will be convenient to discuss the following:
 Government amendments Nos. 526 to 545 
 Amendment No. 394, in 
schedule 34, page 480, leave out line 31 and at end insert— 
 (VULSR{**multi**}CSLA)+ALSA 
 (VULSR xFSLA 
 Amendment No. 395, in 
 schedule 34, page 480, leave out line 35 and insert—
VULSR{**multi**}CSLA 
 VULSR xFSLA 
 Government amendments Nos. 546 and 547.

Ruth Kelly: This group of Government amendments covers the ability to protect large lump sums under the new system.
 The amendments seek to do two things. First, amendments Nos. 528, 529 and 531 allow people who have claimed primary protection for their pensions and who have large lump sums—by ''large'' I mean over the £375,000 that will be allowed under the new regime—to protect those lump sums in a simpler way than that proposed in the Bill. The member will have a protected amount, which he will be able to take from any of his schemes as he sees fit. This is a relaxation of the approach in the Bill, which contains an additional requirement that the lump sum must be taken as an equal percentage of the benefits from each arrangement. It is an administrative relaxation, and I recommend it to the Committee. 
 Amendments Nos. 525, 526, 527, 530, 531 and 533 to 547 are similar in purpose to those that we discussed on changing the valuation procedure of protected pension rights. The changes put the lump-sum valuation on to the same basis. The protected value will be the lower of the value of the accrued lump sum, without the imposition of any early retirement factors, and the maximum lump sum allowed under the Inland Revenue's discretionary approval regime on 5 April 2006, using various assumptions that are set out in detail in the explanatory note. That method of valuation was requested by the actuarial profession in response to the publication of the Bill. This group also contains a few amendments that make consequential changes arising from earlier amendments on valuation and lump-sum benefits. This is a sensible change arising from consultation and I therefore commend it to the Committee. 
 Opposition amendments Nos. 394 and 395 seek to correct a transpositional error in the Bill. I agree with the intention behind them. We have taken advice and we believe that the amendments are technically correct. I therefore recommend that the Committee accept these amendments, too.

Howard Flight: We welcome the Government's amendments in relation to lump sums and see no reason why people should not be free to take whichever pot they choose. We are delighted that our vital amendment has been accepted.
 Amendment agreed to. 
 Amendments made: No. 526, in 
schedule 34, page 477, line 8, leave out 'paragraph 24' and insert 'paragraphs 24 and 24A'.
 No. 527, in 
schedule 34, page 477, line 20, leave out 'paragraph 24' and insert 'paragraphs 24 and 24A'.
 No. 528, in 
schedule 34, page 477, line 22, leave out '(6) and' and insert '(5) to'.
 No. 529, in 
schedule 34, page 477, line 23, at end insert— 
 ' ''(5) If sub-paragraph (2) does not apply, the permitted maximum is the available portion of the member's lump sum allowance.'.
 No. 530, in 
schedule 34, page 477, line 29, leave out 'paragraph 24' and insert 'paragraphs 24 and 24A'. 
No. 531, in 
schedule 34, page 478, line 8, leave out 'Whether or not' and insert 
 'If (and for so long as)'.
 No. 532, in 
schedule 34, page 478, line 12, leave out 'sub-paragraph (1)' and insert 'sub-paragraphs (1) to (3)'.
 No. 533, in 
schedule 34, page 478, line 19, leave out 'paragraph 24' and insert 'paragraphs 24 and 24A'.
 No. 534, in 
schedule 34, page 478, line 21, leave out 
 'rights on 5th April 2006' 
 and insert 
 'pension rights on 5th April 2006, calculated in accordance with paragraphs 8 and 9'.
 No. 535, in 
schedule 34, page 478, leave out lines 27 to 40. 
No. 536, in 
schedule 34, page 478, leave out line 41 and insert— 
 '(2) For the purposes of sub-paragraph (1) there is to be deducted from the aggregate of the lump sum and the amount of the sums and the market value of the assets designated as available for the payment of unsecured pension so much (if any) of that amount as represents rights which are attributable to a disqualifying pension credit.'.
 No. 537, in 
schedule 34, page 479, line 4, leave out '(6) and' and insert '(5) to'.
 No. 538, in 
schedule 34, page 479, line 5, at end insert— 
 '''(5) There is to be deducted from the aggregate of the amount of the lump sum and the annuity purchase price— 
 (a) if the annuity is purchased (in whole or in part) by the application of sums or assets representing the whole or part of the member's unsecured pension fund, the aggregate of the amount of those sums and the market value of those assets, and 
 (b) in any case, so much (if any) of the aggregate of the lump sum and the annuity purchase price as represents rights which are attributable to a disqualifying pension credit.'.
 No. 539, in 
schedule 34, page 479, line 24, leave out 'paragraphs 26 and 27' and insert—
'(a) paragraphs 25 and 27 (in the case of an individual in relation to whom paragraph 12 applies), or 
 (b) paragraph 26 (in the case of an individual in relation to whom paragraph 12 does not apply),'.
 No. 540, in 
schedule 34, page 479, line 38, after '2006,' insert 
 'calculated in accordance with paragraph 29A,'.
 No. 541, in 
schedule 34, page 479, line 40, after '2006,' insert 
 'calculated in accordance with paragraph 29B,'.
 No. 542, in 
schedule 34, page 479, line 41, leave out from beginning to end of line 11 on page 480 and insert— 
 '29A (1) Subject to sub-paragraph (2), the value of the individual's uncrystallised lump sum rights under the pension scheme on 5th April 2006 is the aggregate of the value of the individual's uncrystallised lump sum rights under each arrangement in respect of the individual under the pension scheme, calculated in accordance with paragraph 24(5), on that date. 
 (2) If the pension scheme is a relevant pension scheme, the value of the individual's uncrystallised lump sum rights on 5th April 2006 under an arrangement— 
 (a) which relates to a particular employment, and 
 (b) in relation to which the excess lump sum condition is met (see sub-paragraph (5) or (6)), 
 is the amount arrived at in accordance with sub-paragraph (7) or (8). 
 (3) A pension scheme is a relevant pension scheme if it falls within paragraph 1(1)(a) to (d). 
 (4) Whether an arrangement relating to the individual relates to a particular employment is to be determined in accordance with paragraph 9(6). 
 (5) If no other arrangement relating to the individual under a relevant pension scheme relates to the employment to which the arrangement relates, the excess lump sum condition is met in relation to the arrangement if— 
 (a) the value of the individual's uncrystallised lump sum rights under the arrangement calculated in accordance with paragraph 24(5), exceeds 
 (b) the amount arrived at in relation to the arrangement in accordance with paragraph 24A. 
 (6) If one or more other arrangements relating to the individual under a relevant pension scheme or relevant pension schemes relates or relate to the employment to which the arrangement relates, the excess lump sum condition is met in relation to the arrangement if— 
 (a) the aggregate of the values of the individual's uncrystallised lump sum rights under the arrangement and the other arrangement or arrangements, calculated in accordance with paragraph 24(5), exceeds 
 (b) the amount arrived at in relation to those arrangements in accordance with paragraph 24A; 
 and the amount by which the aggregate of those values exceeds that amount is the ''lump sum excess''. 
 (7) Where the excess lump sum condition is met by virtue of sub-paragraph (5), the value of the individual's uncrystallised lump sum rights under the arrangement is the amount arrived at in accordance with paragraph 24A. 
 (8) Where the excess lump sum condition is met by virtue of sub-paragraph (6), the value of the individual's uncrystallised lump sum rights under the arrangement is the value of those rights calculated in accordance with paragraph 24(5), less the appropriate proportion of the lump sum excess. 
 (9) The appropriate proportion of the lump sum excess is— 
 V 
 AV 
 where— 
 V is the value of the individual's uncrystallised lump sum rights under the arrangement, calculated in accordance with paragraph 24(5), and 
 AV is the aggregate of the values of the individual's uncrystallised lump sum rights under the arrangement and the other arrangement or arrangements, calculated in accordance with paragraph 24(5). 
 29B (1) Subject to sub-paragraph (2), the value of the individual's uncrystallised rights under the pension scheme on 5th April 2006 is the aggregate of the value of the individual's uncrystallised rights under each arrangement in respect of the individual under the pension scheme, calculated in accordance with paragraph 8(5). 
 (2) If the pension scheme is a relevant pension scheme, the value of the individual's uncrystallised rights on 5th April 2006 under an 
arrangement— 
 (a) which relates to a particular employment, and 
 (b) in relation to which the excess rights condition is met (see sub-paragraph (5) or (6)), 
 is the amount arrived at in accordance with sub-paragraph (7) or (8). 
 (3) A pension scheme is a relevant pension scheme if it falls within paragraph 1(1)(a) to (d). 
 (4) Whether an arrangement relating to the individual relates to a particular employment is to be determined in accordance with paragraph 9(6). 
 (5) If no other arrangement relating to the individual under a relevant pension scheme relates to the employment to which the arrangement relates, the excess rights condition is met in relation to the arrangement if— 
 (a) the value of the individual's uncrystallised rights under the arrangement calculated in accordance with paragraph 8(5), exceeds 
 (b) the amount arrived at in relation to the arrangement in accordance with paragraph 9(3). 
 (6) If one or more other arrangements relating to the individual under a relevant pension scheme or relevant pension schemes relates or relate to the employment to which the arrangement relates, the excess rights condition is met in relation to the arrangement if— 
 (a) the aggregate of the values of the individual's uncrystallised rights under the arrangement and the other arrangement or arrangements, calculated in accordance with paragraph 8(5), exceeds 
 (b) the amount arrived at in relation to those arrangements in accordance with paragraph 9(3); 
 and the amount by which the aggregate of those values exceeds that amount is the ''rights excess''. 
 (7) Where the excess rights condition is met by virtue of sub-paragraph (5), the value of the individual's uncrystallised rights under the arrangement is the amount arrived at in accordance with paragraph 9(3). 
 (8) Where the excess rights condition is met by virtue of sub-paragraph (6), the value of the individual's uncrystallised rights under the arrangement is the value of those rights calculated in accordance with paragraph 8(5), less the appropriate proportion of the rights excess. 
 (9) The appropriate proportion of the rights excess is— 
 V 
 AV 
 where— 
 V is the value of the individual's uncrystallised rights under the arrangement, calculated in accordance with paragraph 8(5), and 
 AV is the aggregate of the values of the individual's uncrystallised rights under the arrangement and the other arrangement or arrangements, calculated in accordance with paragraph 8(5).'.
 No. 543, in 
schedule 34, page 480, line 16, leave out 'that occasion' and insert 
 'the individual and the pension scheme'.
 No. 544, in 
schedule 34, page 480, line 18, leave out from beginning to end of line 24 and insert 
 'the individual becomes entitled to all the pensions payable to the individual under arrangements under the scheme (and to which the individual did not have an actual entitlement on or before 5th April 2006) on the same date.'.
 No. 545, in 
schedule 34, page 480, line 26, leave out 
 'for sub-paragraphs (5) to (7)' 
 and insert 
 'the reference in sub-paragraph (2) to the arrangement under which the member becomes entitled to the relevant pension were to the pension scheme and for sub-paragraphs (5) to (8)'.—[Ruth Kelly.]
 No. 394, in 
schedule 34, page 480, leave out line 31 and at end insert—
(VULSR{**multi**}CSLA)+ALSA 
 (VULSR xFSLA
 No. 395, in 
schedule 34, page 480, leave out line 35 and insert—
VULSR{**multi**}CSLA 
 VULSR xFSLA —[Mr. Flight.]
 No. 546, in 
schedule 34, page 480, line 39, leave out '29' and insert '29A'.
 No. 547, in 
schedule 34, page 481, line 12, leave out '29' and insert '29B'.—[Ruth Kelly.]

Howard Flight: I beg to move amendment No. 396, in
schedule 34, page 481, line 20, leave out '30' and insert '20 to'.
 Paragraph 32 widens the definition of a relevant pension scheme provided in paragraphs 30 and 31 to include a scheme to which a block transfer has been made and deems reference to an existing pension scheme to include schemes where there has been such a transfer. We think that the references should be extended and not limited to paragraphs 30 and 31. They should also cover paragraph 20, which protects the right to take a pension at an age below 55.

Ruth Kelly: Part 3 of schedule 34 deals with transitional arrangements for pensions that have not come into payment by 6 April 2006. Given the complexity of the rules and regulations, it is not surprising that, as the industry begins to focus on the details of the move to the new regime, new issues arise.
 The amendment concerns one of those new issues. It would extend the scope of block transfers, so that a protected right to a low normal retirement age is not lost on such a transfer. For example, if there were a block transfer of money dealers from one bank's scheme to that of another bank, the transfer brokers would keep their protected right to a low normal retirement age. 
 I have good news and bad news for the hon. Gentleman. I sympathise with the underlying aim of the amendment. It is in the spirit of the transitional rights that we have identified to protect pre-A-day rights and we see merit in it. However, unfortunately, the amendment is technically defective. We want to examine the issue in greater detail before proposing an appropriate Government amendment. On the understanding that we will consider the issue sympathetically, I urge him to withdraw his amendment.

Howard Flight: I am glad that the Financial Secretary accepts that there is an issue. I am not clear whether she is saying that the Government will produce their own amendment and I would be grateful for clarification on that. I cannot see how the issue could be addressed other than by an amendment. Subject to that, I will not put it to a vote.

Ruth Kelly: Yes, we will produce an amendment.

Howard Flight: I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Ruth Kelly: I beg to move amendment No. 480, in
schedule 34, page 482, line 4, leave out from first 'scheme' to second 'the' in line 27 and insert 
 'is within any of paragraphs (a) to (e) of paragraph 1(1), 
 (b) the member has an actual (rather than a prospective) right to a pension under an arrangement under the pension scheme, and 
 (c) under the arrangement a lump sum death benefit is payable if the member dies within the guarantee period. 
 (2) The guarantee period is the period of five years beginning with the day on which the member became entitled to the pension or, if later, the day on which the pension was first paid. 
 (3) If the member dies after having reached the age of 75 and before the end of the guarantee period— 
 (a) paragraph 14 of Schedule 29 (pension protection lump sum death benefit), 
 (b) paragraph 16 of that Schedule (annuity protection lump sum death benefit), and 
 (c) paragraph 17 of that Schedule (unsecured pension fund lump sum death benefit), 
 apply in relation to the member and the arrangement with the following modifications. 
 (4) Each of those paragraphs applies as if sub-paragraph (1)(a) were omitted. 
 (5) Paragraph 14(1) applies as if paragraph (d) were omitted. 
 (6) Paragraph 14(2) applies as if the reference to the pension protection limit were to the transitional protection limit. 
 (7) Paragraph 16(2) applies as if the reference to the annuity protection limit were to the transitional protection limit. 
 (8) Paragraph 17(3) applies in relation to a lump sum falling within paragraph 17(1) as if the reference to the permitted maximum were to the transitional protection limit. 
 (9) Section 195(1) (special lump sum death benefits charge) does not apply to any pension protection lump sum death benefit, annuity protection lump sum death benefit or unsecured pension fund lump sum death benefit paid by virtue of sub-paragraphs (3) to (8). 
 (10) If the member dies before having reached the age of 75 and before the end of the guarantee period— 
 (a) section 195(1) does not apply to so much of any pension protection lump sum death benefit, annuity protection lump sum death benefit or unsecured pension fund lump sum death benefit paid under the arrangement as does not exceed the transitional protection limit, and 
 (b) if the arrangement is a defined benefits arrangement, paragraph 14(1)(d) of Schedule 29 is to be treated as satisfied in relation to so much of the lump sum death benefit paid under the arrangement as does not exceed the transitional protection limit. 
 (11) The transitional protection limit is— 
 where— 
 P is the amount of pension to which (had the member lived) the member would have been entitled under the arrangement in respect of the period beginning with the day of the member's death and ending with the last day of the guarantee period, and 
 TPLS is the amount of any pension protection lump sum death benefit, annuity protection lump sum death benefit or unsecured pension fund lump sum death benefit previously paid in respect of'.
 The introduction of the new pension regime and the intention to make it apply immediately to all pension schemes from 6 April 2006 requires a series of provisions to ensure that the transition from the old schemes to the new one is fair. The subject of the amendment is the transitional arrangement that 
 should apply to the right of occupational pension schemes to pay the balance of five years' pension payments on the death of the member, the five-year guarantee lump sum, even if—this is the substantive point—that death occurs after the age of 75. 
 Death benefits are a complex area of tax simplification. They have been misunderstood in some quarters. In particular, the issue of whether schemes can continue to offer a five-year guarantee paid as a tax-free lump sum has generated much discussion. In the new pension regime, the facility to repay a tax-free lump sum under the five-year guarantee will be removed, bringing occupational pension schemes in line with personal pensions. In its place, all schemes will be given the flexibility to pay a lump sum death benefit as an additional pension benefit, test it against the lifetime allowance and, provided that it does not exceed the dead member's unused lifetime allowance, pay it to the survivor tax free. That means that, instead of being limited to paying the unused balance of the pension payments to the survivors, employers will be able to pay a larger tax-free amount as a death benefit. 
 Value protection is another new option available in the new regime. It represents the repayment, on the death of the member before age 75, of an amount representing the initial capital value of the pension, less any instalments paid before the date of death. All value protection repayment lump sums will be taxed at 35 per cent. That is equivalent to the existing tax charge on capital payments from income draw-down. 
 However, there will be some individuals in receipt of a pension that started before 6 April 2006 who have a five-year guaranteed pension in place as we go into the new regime. Under the old rules, any lump sum consisting of the balance of the pension payments in the guaranteed five-year period would be paid tax free to that person's spouse, even if the death occurred after the age of 75. 
 In the new regime, no return of capital will be permitted after age 75, and value protection repayment lump sums will be taxed at 35 per cent. Clearly, it is only right that transitional protection be extended to people who have a five-year guarantee arrangement already in place to allow a tax-free lump sum to be paid if death occurs within five years of retirement. The amendment redrafts paragraph 34 to remove any possible doubt about the continued ability of occupational schemes to offer tax-free lump sums on death, and I commend it to the Committee.

Howard Flight: We are happy with the Government's proposals.
 Amendment agreed to. 
 Amendments made: No. 481, in 
schedule 34, page 483, line 23, after 'election' insert 'on or'.
 No. 482, in 
schedule 34, page 483, line 27, leave out 'before 6th' and insert 'on or before 31st'.
 No. 483, in 
schedule 34, page 484, line 20, leave out 'continues to apply' and insert 'applies'.
 No. 484, in 
schedule 34, page 485, line 2, at end insert— 
 'Application of PAYE to certain annuities in payment at commencement 
 43A (1) Taxable pension income for the tax year 2006–07 or any subsequent tax year determined in accordance with section 612 of ITEPA 2003 for an annuity to which this paragraph applies is to be treated as being PAYE pension income for the tax year by virtue of section 683(3) of that Act (PAYE income). 
 (2) This paragraph applies to an annuity in payment on 5th April 2006 which— 
 (a) would be within paragraph 1(1) but for paragraph 2, or 
 (b) would be within paragraph 1(1)(d) if the annuity did not provide for the immediate payment of benefits.'.—[Ruth Kelly.]

Howard Flight: I beg to move amendment No. 397, in
schedule 34, page 485, line 10, leave out 
 'an employer of an individual makes a relevant consolidation contribution' 
 and insert 
 'a relevant consolidation contribution is made'.

John Butterfill: With this it will be convenient to discuss amendment No. 398, in
schedule 34, page 485, line 18, at end insert 
 'or a transfer from an arrangement not falling within paragraph 1(1) which was established before 6th April 2006'.

Howard Flight: Paragraph 45, to which amendment No. 397 relates, is about allowing unfunded, unapproved top-up promises to be merged into registered schemes without triggering a liability under the annual allowance charge. Allowing such consolidation, if people want it, is sensible. The amendment seeks to draw an explanation from the Financial Secretary as to why that flexibility is not extended to funded, unapproved top-up schemes by similarly allowing transfers from them into registered schemes. In essence, amendment No. 398 deals with the same point.

Ruth Kelly: The two amendments seek to change paragraph 45 of schedule 34, which is concerned with the transitional arrangements concerning unfunded retirement benefit schemes.
 I apologise to the Committee, because the explanatory note for the paragraph referred to 
''unfunded unapproved pension promises under the previous pension regime''.
 It should have been ''unfunded pension promises''. I apologise for that typographical mistake, which may have caused some confusion. 
 Unfunded retirement benefit schemes can be either approved or unapproved, or in the new regime, registered or unregistered. Those schemes are in effect a promise to pay the employee a benefit in the future, but with no underlying employer contribution. 
 Paragraph 45 allows that, where there is an unfunded promise before 6 April 2006, an employer can consolidate the promise by making a contribution to a registered pension scheme. Provided the contribution is made in the period from 6 April to 7 July 2006, it will not count towards the pension input for the tax year 2006–07. That means the contribution is not taken into account when determining whether 
 an employee is liable for an annual allowance charge for 2006–07. 
 The hon. Gentleman has put forward two amendments to paragraph 45. Amendment No. 397 is very widely drawn and seeks to remove the requirement that the employer makes the relevant consolidation contribution and open it up, so that anyone can make a contribution to discharge the employer's liability. 
 It is difficult to see why anyone other than the employer would want to discharge any employer's liability in respect of unfunded promises made by them. I suppose that another company within the same group might want to consolidate such unfunded promises. However, we have received no representations on that point. I will happily consider it further should it prove to be an obstacle in practice. In any event, it is not appropriate to open up the provision so widely that anyone can consolidate an unfunded pension promise, as the amendment would allow. The amendment could open up a possible loophole, so I ask the hon. Gentleman to consider withdrawing it. 
 Amendment No. 398 seeks to extend the meaning of ''relevant consolidation contribution'' by including a transfer from an ''arrangement'' that is not deemed to be a registered pension scheme and which was established before 6 April 2006. The term ''arrangement'' is not defined in the amendment, but the hon. Gentleman said that it was a funded unapproved pension scheme. 
 There is no need to make separate provision for transfers from unapproved funded pension schemes because clause 177(5) already provides for the transfer of any sum from one pension scheme to another at any time. That clause also makes clear that the transfer is not treated as a contribution, so although it is not relieved from tax it will not count towards the pension input amount. It has the same effect as the hon. Gentleman's amendment, and on that basis I hope that he will not press his amendments.

Quentin Davies: There is just one contingency that I would like the Financial Secretary to address. It relates to an employer having an unfunded pension liability and the proposal in the amendment tabled by my hon. Friend the Member for Arundel and South Downs that anybody should be allowed to discharge that unfunded liability.
 The Financial Secretary says that she cannot conceive of any circumstances in which anyone other than the employer might want to discharge the employer's liability. One such case immediately occurs to me. A company is taking over another company, which has unfunded liabilities The company being taken over does not have the money to fund its liabilities, which is part of its problem, but another company with the money is taking it over, and part of the arrangement, the undertaking, the deal or the contract by which the takeover takes place is that those unfunded pension liabilities will be discharged 
 by the offeror—the company taking over the other one. 
 Would it not be irrational to prevent such an arrangement taking place? Would not the amendment allow that to take place in a sensible fashion? I see from the Financial Secretary's body language that she does not disagree with me.

Howard Flight: I am glad to note that the issue about funded, unapproved top-up schemes has been covered in clause 177. I would be interested to hear the Financial Secretary's response to the most helpful contribution by my hon. Friend the Member for Grantham and Stamford, because that was one of the areas in which we thought that another party might pay the unfunded amount.

Ruth Kelly: The point made by the hon. Member for Grantham and Stamford is important. However, it should be covered by the fact that the taking-over company would become the employer for those purposes. The issue is covered by the proposed legislation.

Quentin Davies: Not necessarily, because the offeree company might then be put into liquidation. The offeror company might purchase the shares and then cancel them, so the payment into the fund—in other words, the consolidation of the unfunded liability—might need to take place in the name of the offeror company. If such an arrangement is otherwise sensible and rationale, what possible purpose can there be in drafting tax law to prevent it?

Ruth Kelly: I am not aware that that particular point is an obstacle, but I will look into it and write to the hon. Gentleman.

Howard Flight: May I just make the point the other way round? Unless there is some very good commercial reason, nobody will have any interest whatever in funding, and so there seems to be an argument for having fairly wide, rather than narrow, drafting. Narrow drafting could block up a very valuable commercial arrangement such as the one that my hon. Friend the Member for Grantham and Stamford has commented on.
 We will not put this issue to a vote, but I ask the Government to think further about the point, because they seem to be looking through the wrong end of the telescope. It is better to have a wider draft than a narrow one. I cannot see any mischief that could arise from a wide draft.

Ruth Kelly: I want to clarify one particular point. There are problems with the proposal that the hon. Gentleman has put to the Committee. For example, somebody could try to manipulate the taxation relief by deliberately creating an unfunded pension scheme before 5 April 2006 and then making a contribution to it in excess of the annual allowance limit. Restricting the consolidation contribution to the employer avoids the possibility of such manipulation arising. We do not want to create an unintended tax loophole by drawing the provision too widely, although we will look at the individual points that have been raised and if there does prove to be an obstacle in practice, we will return with proposals.

Howard Flight: I thank the Financial Secretary for her comments and, on the basis of what she said, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendments made: No. 485, in 
schedule 34, page 485, line 38, leave out 
 'Paragraphs 50 to 52 have' 
 and insert 
 'Paragraph 50 or 51 has'.
 No. 486, in 
schedule 34, page 486, line 2, leave out 
 'to which an employee has been' 
 and insert 
 'of which an employee is'.
 No. 487, in 
schedule 34, page 486, line 9, leave out 'would be' and insert 'is or are'.
 No. 488, in 
schedule 34, page 486, line 11, leave out 'has been' and insert 'is'.
 No. 489, in 
schedule 34, page 486, line 13, leave out 'has been' and insert 'is'.
 No. 490, in 
schedule 34, page 486, line 15, leave out 'have counted' and insert 'counts or count'.
 No. 491, in 
schedule 34, page 486, line 17, leave out 
 'none of paragraphs 50 to 52 apply' 
 and insert 
 'neither paragraph 50 nor paragraph 51 has effect'. 
No. 492, in 
schedule 34, page 486, line 19, leave out 'applies' and insert 'has effect'.
 No. 493, in 
schedule 34, page 486, line 25, at end insert 
 'or 
 (b) the scheme was entered into before 1st September 1993 and has not been varied on or after that date with a view to the provision of benefits under the scheme.'. 
No. 494, in 
schedule 34, page 486, line 28, after '2003' insert 
 '(charge on benefits from non-approved schemes)'.
 No. 495, in 
schedule 34, page 486, line 32, after first 'the' insert 'appropriate fraction of the'.
 No. 496, in 
schedule 34, page 486, line 36, after 'scheme' insert 'is or'.
 No. 497, in 
schedule 34, page 486, line 38, leave out 
 'The amount referred to in sub-paragraph (3)(a)' 
 and insert 
 'For the purposes of sub-paragraph (3)(a)— 
 (a) ''the appropriate fraction'' of the amount of the market value of the assets of the scheme on 5th April 2006 is the same fraction as the fraction of the assets of the scheme to which the employee would have been entitled had the scheme been wound up on that date, and 
 (b) the amount of the market value of the assets of the scheme on that date'.
 No. 498, in 
schedule 34, page 487, line 1, leave out from 'paragraph' to end of line 2 and insert 
 'has effect if paragraph 50 does not.'.
 No. 499, in 
schedule 34, page 487, line 8, leave out paragraph 52.
 No. 500, in 
schedule 34, page 487, line 22, at end insert 
 'and 
 (b) property which is part of or held for the purposes of the fund or scheme does not constitute relevant property for the purposes of Chapter 3 of Part 3 of that Act (settlements without interest in possession).'.—[Ruth Kelly.]
 Schedule 34, as amended, agreed to.

Clause 270 - Commencement

Question proposed, That the clause stand part of the Bill.

Howard Flight: At one stage, I thought that we would never reach this clause, such has been the marathon so far.
 It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
 Adjourned till this day at half-past Two o'clock.